commerce essay

A Theoretical Approach To Evaluation Of Business Commerce Essay

Published: 23, March 2015

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The literature on strategy and strategic management is vast. In management literature 'strategy' made its entry in the 1960s, primarily because (Chandler 1962) used the term in the title of a book on management. Until that time the concept had only been used in connection with the military leadership. Management researchers and writers use the term strategy in as many ways as it is used in everyday speech. There have been several attempts in literature to categorize strategy perspectives or schools of thought (e.g. Mintzberg 1990 and Whittington 2001). But definitions of strategy have not been executed frequent and the researchers/writers who have been in this area have focused mainly on describing different views rather than to show or analyze the correlations between them. In the following I will try to make the correlation between two key views on strategy analyses: Industry perspective and the ressourcebased view. They are both occupied with the concept of competitive advantage which consists of two components (Verdin & Williamson, 1994); external sources and internal sources.

Focus on the internal sources - Resource based view (Inside out)

The resources based view works with and underlines the internal capabilities of the organisation in sustainable competitive strategies in the market. Jay Barney is often mentioned as the author of the RVB approach (reference), but also significant contributions have been made by authors like Wernerfelt (1984) and Gary Hamel/ C. K. Prahalad (1990). They have similar but still slightly different understandings of RBV, but fundamentally they argument for inside-out view, where the competitive advantage derives from a company resources - the startingpoint is the internal environment and the resources within. Grant writes about these resources and puts them into three groups: tangible, intangible and human (reference). Studies show that there are differences in companies' returns within specific industries (Werner Field & Montgomery, 1988). These differences are interpreted as caused by the existence of company specific differences in resources and skills. So the main hypothesis of the RBV writers is that is its 'portfolio' of resources and skills and the effective use of them, which is the prerequisite for achieving sustained competitive advantage (reference). With the publication of the book: The Theory of the Growth of the Firm (Penrose 1959) Edith Penrose advocates the view that the limitation of a company's growth opportunities are primarily related to its internal resources and capabilities.

RBV school is focused on answering the question: "How can some companies be more successful than other companies apparently operating under the same external business environment? The answer to RBV is that it is the internal resources and their exploitation that are essential for a company's competitive position and not the industry structure. SO the basic of the RVB can be summoned up to

It can be argued that this theory is a little one track minded on enterprise resource being the only factor in building competitive advantages. Porter (1990) argues that on RBV as "being a complement and not substitute to industry analyses. In my view the resource-based view has a weakness, since it only relates inward - inside out, so it does not create an immediate understanding of its environment, or the fact that a company must act in the environment in order to compete in the industry. The most outspoken criticism of the school's theory and method of formation is directed against the unfortunate consequences of the school's one-sided emphasis on the company's resource page at the expense of the market since, as it is the critic points to the weighting results in a relatively rigid supply-oriented organizational structure in a dynamic market will lack the necessary skills to adapt and exploit market individual vendor requirements and customer wishes. Other critiques have been made to the RBV of lacking detail and therefore being difficult to implement (Priem Butler 2001) basically you could put the critique on RVB that - it's too one-sided.

Focus on the external sources - Industry Perspective

Porter is a prominent scientist in relations to the outside-in view. Porter, or more correct the positioning school, tries explaining why some companies are more successful than other companies when they apparently are subject to the same business conditions (reference). In addition, the school has focused on answering the question "What forces drive competition in an industry"? In relation to The Statement Porter believes that for the individual company, the industry structure is essential for the company's strategic development and competitive position (reference).

Porter identifies 5 different basic forces which determine a company's competitive position in the market - a model of industry attractiveness. (Porter's 5 Forces). The five forces are environmental forces that influence a company's ability to compete in a given market. The tool is used to illuminate the main competition issues in a market and measure how strong and important each one of them are. Creating an attractive positioning from a strategic analyses of the 5 forces can give a strong competitive position in a given market area.

Porter's Five Forces Model has some limitations with the market and business environment we have today. One of the criticisms is that the model assumes a relatively static market structure (reference) that can only create a snapshot picture of the market situation. Porter's model is based primarily on the economic situation in the 80s were characterized by strong competition and a stable market structures. Today's market is dynamic, hectic and constantly changing (Prahalad and Gary, 1990), which also affects the firms acting in these markets. Hill and Jones (1995) make further criticisms of Porter's 5 forces by stating that a company's success is not certain to be successful just because it operates in an attractive industry.

The positioning school are solely focused on the market conditions and their crucial role in the competitive position of a company. They do not involve the internal environment in determining/improving the competitive position of a company. This in my view is a very limited view on competitive positioning. Studies show that there are differences in companies' returns within specific industries (Werner Field & Montgomery, 1988). These differences are interpreted as caused by the existence of company specific differences in resources and skills. So it can be argued that it is the companies 'portfolio' of resources and skills and the effective use of them, which determines a sustainable competitive advantage. You could put the same critique on the industry perspective as on the RBV - it's too one-sided.

Not either or, but both

I have now looked at our statement through the two perspectives to strategy thinking. In my opinion, there is no one best way. It's about finding the perfect fit between inside out and outside in focus. The industry perspective and RBV perspective in strategic analysis are two parts of the same whole. E.g. in analyzing the industry perspective, it is possible to identify distinguished elements, which lies outside the area of RBV and vice versa. So to create a full understanding of strategic analysis and the processes inherent in such, you should execute both analyses. To be able to navigate and be successful in today's market you have to adapt to the external environments and the internal resources as well. SO you have to be able to navigate and analyse successfully in both sectors and to create the perfect fir between. But it is difficult to combine theories that as a starting point are so different in their approaches to strategy and management. One claiming industry matters and that the environment is a stable factor and the other one that resources matter more and that the only thing you can rely on are the internal capabilities. Another possibility is to make the argument that it's not a neither or, but both ... Power on the market is based on firm resources and RBV are providing the content for creating sustaining the market position. Basically there would be no market without the resources and vice versa. One could argument for the best fit - A contingency approach. There are 4 main ideas in the contingency approach:

Four important ideas of Contingency Theory are:

1. There is no universal or one best way to manage

2. The design of an organization and its subsystems must 'fit' with the environment

3. Effective organizations not only have a proper 'fit' with the environment but also between its subsystems

4. The needs of an organization are better satisfied when it is properly designed and the management style is appropriate both to the tasks undertaken and the nature of the work group.

The contingency theorists argue that there are no one best way to management or strategy building. This which underlines the relevance of building an appropriate fit between the inside resources, the market, the corporate culture and strategy. Theorists as Fiedler, Hershhey & Blanchard, and Vroom and Yetton ahve been wotking with this approach and .......

Conclusion and further reading

Strategic analysis has two dominant approaches or better referred to as fractions. Outside In which is based on Porter and the positioning schools and the inside out concept which is often referred to as Barney as the central person, but none of them can do without the other. The fundamental difference is that inside-out looks at the strategic analysis and a company competitive ability as being based on the internal resources and capabilities of which the company has at its disposal Conversely, working with outside in - this fraction works from the starting point that it is the structure of a given industry which determines the companies competitive ability. My point is that one cannot go without the other. An industry analyses requires both internal and external analyses to be successful. An alternative approach might be relevant in our changing world as we go in now,

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